Eight northern countries and EU

The green light for the formation of the government in Germany by the Social Democratic Party immediately produced a reaction from the Dutch, Swedish, Danish, Irish and Finnish governments, as well as the three Baltic countries. Led by the Dutch leader Mark Rutte, the eight countries have launched a message stating a preventive no to proposals for the revival of Community policies, by France and Germany, based on ideas previously outlined by Emmanuel Macron.

The French president had been rather cautious, but anyway in his proposals there was a certain greater emphasis on macroeconomic stabilization policies conducted by a European Finance minister. So even without proposing some kind of risk-sharing on debts or euro-bonds, Macron resumed a proposal of a European unemployment fund, a hypothesis formulated also by Italy. The eight northern countries reject any proposal leading to a stronger role in Brussels, underlining the need for strict compliance with the fiscal compact rules. In short, a clear no to any kind of transfer-Union.

The feature that unites the eight countries is that they all have right-wing governments, but perhaps we must also look at macroeconomic data, which can provide useful information. The first thing that can be seen is that we are talking of smaller countries: the largest, the Netherlands, has a population of 36% compared to the Spanish one, even if the GDP is equal to 50%. In these countries the share of exports compared to GDP is very high. With the exception of Finland (35.6%, still greater than France, Italy and Spain), the other seven countries have shares ranging from 45.3% in Sweden to 121.6% in Ireland.

In countries where external demand has such a significant weight there is less need to sustain domestic demand, in order to increase GDP. Current account balances reach 8.6% in the Netherlands, 8.4% in Denmark and 5.5% in Ireland. As a result, fiscal policy can be restrictive, with public budgets close to balance and low public debt.

           Eurostat data 2017 (GDP growth) and 2016 (surplus-deficit and debt)

 2016 data

It should be noted that the highest debt-to-GDP ratio, that of Ireland, had reached 119.6% in 2012 after the banking crisis, which had forced the country to exit the financial market and seek help from the European rescue fund. Ireland has long been the subject of criticism for a tax haven policy, with a 12% rate on corporate income, and recently Pierre Moscovici has officially expressed the criticism of the European Commission toward Ireland, Holland, and other countries.

However, the eight countries still have rather high unemployment rates; it ranges from 9.4% in Latvia to 5.9% in the Netherlands. With a low public debt, the economically most logical choice should be that of increasing public spending, especially public investments, in deficit. One does not have to be one hundred percent Keynesian to understand this, but the political choice of right-wing governments is rather that of reducing taxes.

Where there is a marked differentiation between the eight countries, it is in the Net international investment position, i.e. the difference between credits and debts between residents and non-residents. In fact, we have two countries with strong surpluses (similar to the German one): Holland 67.6% and Denmark 54.8%; instead, Ireland and the three Baltic countries have a negative position, in particular, the Irish one, which is strongly negative: minus 176.2%. The Baltic countries range from a minimum of -37.1% in Estonia to -58.9% in Latvia. The other two countries are closer to parity, with a slight surplus (+ 10.5%) in Sweden and an almost balance (-2,3%) in Finland. In the hypothesis of an interest rates hike that triggers a general recession or even a new financial crisis, the Celtic tiger and the Baltic ones will have to face difficult situations.